Executives at Invel Real Estate Partners are looking across Europe for investment opportunities, and Greece — having recently emerged from distress — is of special interest due to the firm‘s in-depth knowledge of the market.
Based in Jersey, Channel Islands, Invel has an overall exposure to the hospitality sector of 350 million euros ($396.6 million), with approximately 150 million euros deployed over the last 12 months in Greece and Cyprus. The company was founded in early 2013 by Christophoros Papachristophorou, a former managing director and global head of RREEF Opportunistic Investments, the private equity real estate arm of Deutsche Bank.
“Invel is a European real estate investment and asset manager," senior partner Arnaud Plat said. "We focus on investment themes — hospitality being one of them — and geographies where we have a competitive advantage and boots on the ground.”
Hotel assets in Invel's portfolio in Cyprus include the Hilton Nicosia, Landmark Nicosia and Parklane, a Luxury Collection Resort & Spa, Limassol. On the Greek mainland, Invel owns the Nikki Beach Resort & Spa Porto Heli.
The Greek hotel industry is in need of fresh capital, according to Alex Pipilis, Invel’s principal and head of acquisitions for Greece and Cyprus.
“Due to the Greek economy being particularly dependent on the tourism sector, COVID-19 had a detrimental impact on the financial position of many hoteliers, despite the efforts of the government to support businesses," he said. “The withdrawal of liquidity, high employment costs and the collapse of Thomas Cook in 2019 have all put pressure on the hospitality market. The above factors have resulted in a number of distressed opportunities in the hospitality sector."
But space to realize growth and added value will come as the attractiveness of summer vacations in Greece grow internationally as the world emerges from the pandemic, Pipilis said.
Secondly, the traditional model of hotels being owned and operated by local families — who have been hit hard by reduced demand over the last two years — is under strain. The result is there are opportunities for assets to be acquired, renovated with extensive capital expenditures and rebranded higher up the segment chain and at a higher price point, Pipilis said.
Plat and Pipilis said the pandemic had a particularly positive impact in the high-end, ultra-luxury segment of the hotel industry, mainly due to high-net-worth individuals. Since the start of the crisis, they have been particularly focused on privacy, large open spaces and an affinity towards low-density products.
Beyond hotel growth opportunities in Greece, Invel could look to grow its portfolio in Italy, executives said.
Growth From Crisis
One of the effects of the Great Recession, which hit Greece hard, is that investment opportunities have been created in Greece across all real estate sectors, Pipilis said.
“On the other hand, there has been a significant effort by the Greek government to minimize the effect of the pandemic, the Greece 2.0 initiative, focusing on the recovery of the Greek economy through use of European Union funds, which has been particularly effective for SMEs [small and medium enterprises],” he said.
He added that with Invel’s existing hotel investments in Greece and Cyprus, the strategy is to reduce operating costs and drive efficiencies and synergies to minimize potential losses due to unexpected COVID-19 related closures.
“Furthermore, we focused our marketing efforts on locations with declining COVID-19 cases and relatively relaxed COVID-19 travel restrictions to allow for advance bookings and last-minute holiday escapes," Pipilis said. "As a result, all our hospitality assets exceeded budget expectations for the 2021 season and performed very well, considering the climate we had to operate in."
Plat said as the firm has grown, it has changed the manner in which it invests.
“Our original model was … one of co-investment, on a transaction-by-transaction basis with financial partners," he said. "Over the years, our model has evolved, and whilst we still pursue transactions through co-investments with financial partners, we also pursue transactions either on our own or through separate accounts."
Pipilis said Invel’s strategy to generate high returns for all its real estate interests means growing its experience and local presence.
“This is even more so in the hospitality sector. Hospitality assets are particularly asset-management intensive, and due to our approach of repositioning and rebranding, there are typically significant CapEx requirements [that] would require proper oversight and control,” he said.
Investor Advantage
Pipilis said as most hotels in the region are privately owned by families, pricing expectations and transaction negotiations are protracted, usually with local hoteliers having above-market expectations.
Furthermore, structuring around certain limitations sellers might have — such as share versus real estate acquisition, deferred tax liabilities and separating assets from the holding company — creates both challenges and opportunities.
Experience helps to unravel these knots, Pipilis said.
“Given our experience in the real estate sector and through completing complex transactions, we have a unique ability to complete transactions while also satisfying the sellers’ needs,” he said.
Good sourcing abilities also help Invel's portfolio and bottom line, despite new participants entering the market.
“Most newcomers are currently trying to create a local presence and eventually create a larger platform, contrary to Invel which already has [approximately] 2.2 billion euros of assets under management in the region," Pipilis said. “As a result, we are witnessing newcomers who are willing to pay higher prices in order to enter the region, inadvertently creating an imbalance in the market."
During the summer of 2021, the number of tourists who visited Greece was 60% of what it was in the same period in 2019, the country's best year on record. But in July and August 2021, the number of tourists was on par with the same two months in 2019.
“This further supports our thesis that a Greek summer holiday is becoming an international trend that we should be capitalizing on," Pipilis said. "City and meeting hotels are not of particular focus, but we do have [approximately] 50 million euros of capital deployed through smaller hospitality products in the region."
Pipilis expects Mediterranean countries will witness the highest increase in operating performance as the industry emerges from the pandemic.
“This is driven by the long and stable summer seasons, renewed political stability, favorable tax regimes [and] their growing desirability from U.S. and Asian populations,” he said.
Invel also has a focus on office real estate, especially high-quality green office space in core markets, a demand that has increased during the pandemic.
“In Greece, most of the demand for office space is driven by the Greek government efforts to attract foreign investments into the region, and as a result Invel is focusing its strategy in creating green, sustainable office offerings to attract all major tenants coming into the market,” he said.
Invel recently issued a 300-million euro retail bond via its Prodea division, the first Greek real estate-backed green bond to support the government’s strategy.
“Likewise, we expect demand for well-located retail assets with the right positioning will return,” Pipilis added.